China Trade Poses Security Threat to U.S., Panel Says

By EVELYN IRITANI

July 12, 2002 12 AM PT

TIMES STAFF WRITER

The United States is underestimating the threat to its security, jobs and technological competitiveness caused by exploding trade and financial relations with China, according to a fact-finding report to be sent to Congress on Monday.

The 209-page document, prepared by the U.S.-China Security Review Commission, shows skepticism of China’s attempts to open to the West and warns of the dangers posed to the U.S. The 12-member bipartisan panel of businesspeople and experts was set up by Congress in 2000 to be a permanent watchdog on relations between the countries after the bruising battle over extending permanent trade status to China.

The report is the latest congressional effort to define the issues that have dogged U.S.-China relations for years. It calls for increased scrutiny of U.S. corporate activities in China to prevent the erosion of the U.S. industrial base, stronger penalties for violating arms control agreements and greater protection for industries such as steel that face stiff competition from China.

The commissioners took particular aim at the potential harm created by the rapidly deepening economic ties between the two countries, a move that has special significance for trade-dependent California. They maintained that China, through its trade and access to more than $14 billion raised in U.S. capital markets, was able to modernize its military and expand its influence in Asia at the expense of the U.S. The report also blamed the rush of multinationals to China for aggravating the U.S. trade imbalance, which has ballooned to $87 billion.

“This kind of behavior is not trade; this is global manipulation by companies for their own bottom line,” said Richard D’Amato, a Democratic state lawmaker from Maryland and chairman of the commission.

Though acknowledging China’s dramatic economic achievements, the commission contended that Communist leaders had made little progress toward granting Chinese political and religious freedom, protecting human and labor rights and stopping illegal weapons sales.

The report described the Chinese government as a suspicious and often hostile force that viewed the U.S. as a “unilateralist” superpower intent on imposing its values on other nations. Opening the economy to free-market forces could lead to widespread domestic upheaval or the creation of a wealthy dictatorship, neither of which would be good for the U.S.

Even before it hit the printing press, the report touched off controversy in the U.S. business community. Commission member William Reinsch, the head of the National Foreign Trade Council, a business lobbying group, refused to support the findings, saying they were a simplistic effort to blame China for “virtually every economic problem the U.S. has.” His was the only dissenting vote on the commission, which was heavily weighted toward military experts.

“The truth is our bilateral relationship is doomed to be difficult,” Reinsch said in his statement. “We vie for influence in the region. This is neither unnatural nor unusual and should not be justification for demonizing China and turning our relationship into a struggle for good and evil.”

Trying to turn Washington’s attention to a complex matter such as China relations could prove to be a challenge, given the distractions of unfolding corporate scandals, tensions in the Middle East, the war on terrorism and the November elections, so the fate of the recommendations is unclear.

U.S.-China relations have warmed in recent months, helped along by China’s entry in the World Trade Organization and the government’s support for the U.S.-led anti-terrorism campaign.

“I think people’s security fears in Washington right now are pretty close to home,” said Edward Gresser, a former Clinton administration trade official now at the Progressive Policy Institute, a Washington think tank, who was not on the panel. “People remain well aware of the problems in our relationship and are unsure of the future direction China will take, but the image of China has generally improved during the course of this terrorist campaign.”

The emotions surrounding U.S.-China relations reflect the challenges of balancing economic and military interests in a world in which a free flow of capital, goods and people has blurred the lines between friend and foe.

Proponents of closer economic ties with China say the $121 billion in two-way trade will lead to warmer political ties and foster a more democratic, prosperous country capable of buying American airplanes, wheat and pharmaceuticals. But skeptics worry that the U.S. is blindly sacrificing manufacturing jobs, technology and military security in the pursuit of a quick buck.

“We do not claim that all is sweetness and light,” said Robert Kapp, president of the U.S.-China Business Council, a Washington trade group. “We do not claim there is no potential for conflict between these two great nations. But we do believe much progress has been made and the way forward lies in closer engagement and better communication.”

No place has more of a stake in this new chapter of globalization than California, the portal last year for more than $341 billion in international trade. A leading entryway for Asian commerce and immigration for more than a century, California is home to some of the country’s largest China traders and nearly 1 million people of Chinese descent, many of whom have played a key role in that nation’s economic rise.

Supporters of strengthened economic ties with China embraced some aspects of the report, including its finding that U.S. understanding of China’s worldview and political actions is woefully inadequate and contributes to misunderstanding and conflict. The report urged Congress to beef up funding for Chinese language and study programs and to resume the military-to-military programs disrupted by last year’s EP-3 spy plane incident.

Nicholas Lardy, a China expert at the Brookings Institution, agreed with the commission that the U.S. should carefully monitor China’s adherence to market- opening measures under the WTO. He said China had a mixed record, moving quickly to lower tariffs and quotas but proceeding with caution in areas such as developing a new policy on genetically modified organisms in food imports.

But Lardy said commission recommendations to consider closing U.S. markets to Chinese imports--such as textiles or steel--would threaten China’s economic stability and hurt U.S. consumers.

“We have a long list of goods we think are competitive and we should sell more,” he said. “We don’t want to talk about or face up to the fact that China is also competitive in some sectors.”

In the area of arms control, the commission already has strong support from its chief backer, Sen. Robert C. Byrd (D-W.Va.), who has been an outspoken critic of China’s alleged role in the spread of weapons of mass destruction.

Though Beijing has signed the Nuclear Nonproliferation Treaty and the Comprehensive Test Ban Treaty, it has denied knowledge of illegal weapons transfers by Chinese companies. In November 2000, China promised it would stop helping Pakistan and other countries to develop ballistic missiles, but that export control system has not yet been implemented, according to the commission.

Byrd already has endorsed one of the commission’s recommendations, which would dramatically expand the penalties the White House can impose for illegal weapons sales. It would give the president the authority to sanction offending governments, as well as companies, for illegal weapons transfers and impose a wide range of economic penalties, including restrictions on trade and investment and access to U.S. capital markets.

The commission also urged the U.S. to continue the Tiananmen Square sanctions denying export licenses for satellite launches in China until Beijing fully complies with its agreement to draw up and publish its export control regulations.

Commission Chairman D’Amato said several recommendations already were being considered by Congress. Those include legislation that would require an annual report on science and technology transfer to China and increased funding for the U.S. Customs Service to enforce an agreement with China aimed at stopping the flow of prison-made goods to the U.S.

(BEGIN TEXT OF INFOBOX)

Going to China

Computers and electronics led California’s exports to mainland China in 2001. The top 10 exports and their value, in millions of dollars:

Computers, electronics

$2,562

Machinery (except electrical)

$514

Waste and scrap

$417

Chemicals

$185

Transportation equipment